At Empowered Investor, we don’t believe it is a good idea to buy any property on an all-cash basis. There is absolutely no good reason to do that when you can put down 20% and let the bank take the majority of the risk in the deal. However, for the purposes of illustration, let’s look at a quick example of how you would buy a property for cash through your IRA. Later, we’ll learn how we suggest you do it if you are serious about creating wealth.
Here’s our all-cash example. Let’s say Ron has $500,000 in a Roth IRA and wants to purchase an income property for $199,500. He makes the all-cash offer, contingent on inspections. The offer is made in the name of the Roth IRA, but since Ron is the fiduciary and the property will be owned by the IRA, he reads and approves the offer on behalf of the IRA.
Neat, huh? Absolutely.
Now Ron wires a deposit of $5,000 earnest money to the title money. The inspections reveal some plumbing and electrical problems, as well as a pest infestation. Correcting all this will cost about $7,500. Ron negotiates with the seller to reduce the purchase price by $7,000. The deal is completed when Ron sends a $200,000 check to cover purchase and all associated closing costs.
When it comes time to rehab the property, guess what? Repair expenses are going to come out of his IRA as well. Remember, this is tax deferred money being used to cover all costs associated with investing in this property. This is how to make your money work for you through an IRA. But it gets even better.
Stay tuned.
